Equity Residential (NYSE: EQR) today reported results for the
quarter and six months ended June 30, 2020.
Second Quarter 2020 Results
All per share results are reported as available to common
shares/units on a diluted basis.
Quarter Ended June 30,
2020
2019
$ Change
% Change
Earnings Per Share (EPS)
$
0.70
$
0.83
$
(0.13
)
(15.7
%)
Funds from Operations (FFO) per share
$
0.86
$
0.80
$
0.06
7.5
%
Normalized FFO per share
$
0.86
$
0.86
$
—
—
Six Months Ended June
30,
2020
2019
$ Change
% Change
Earnings Per Share (EPS)
$
1.53
$
1.11
$
0.42
37.8
%
Funds from Operations (FFO) per share
$
1.72
$
1.61
$
0.11
6.8
%
Normalized FFO per share
$
1.72
$
1.67
$
0.05
3.0
%
“These challenging times have brought out the best in the Equity
Residential team as we serve our fellow employees, residents and
communities. We could not be prouder or more grateful,” said Mark
J. Parrell, Equity Residential’s President and CEO. “We see good
demand for our apartments, both urban and suburban, but with
increased customer price sensitivity, especially in the urban cores
of New York, San Francisco and Boston. Looking forward, we believe
the rate of improvement in our business will be dictated by how
effectively the virus can be controlled and more normal economic
activity restored. In the meantime, our strong balance sheet, state
of the art operating platform and opportunistic mindset leaves us
well positioned to weather the storm and to take advantage should
conditions allow.”
Highlights
- The Company experienced a recovery in demand by late May 2020.
Initial leads, Traffic and applications continue to be in-line with
the same time last year;
- During the second quarter of 2020, the Company collected on
average 97% of its total monthly Residential rental income. July
2020 collections continue to trend on a similar pace to prior
months;
- Strong expense control, along with continued enhancements in
our operating platform, led to a decline in same store expenses for
the second quarter;
- Resident retention was the highest for the second quarter in
the Company’s history;
- The Company sold two properties, totaling 655 apartment units,
during the second quarter of 2020 for an aggregate sales price of
approximately $384.2 million; and
- The Company successfully implemented changes to its leasing and
service operations as well as the physical layout of its properties
as part of its commitment to health and safety. The Company remains
focused on further enhancing its existing health and safety
standards during the pandemic.
COVID-19
The Company continues to support its residents and employees
during the COVID-19 pandemic. The Company is utilizing technology
to allow our property teams to interact remotely with current and
prospective residents, including a touchless new leasing process
and a service process designed to limit contact. We also continue
to provide additional paid leave for employees impacted by the
pandemic and paid special bonuses to certain on-site employees
during the second quarter of 2020 in recognition of their
significant efforts. Among other resident support efforts, we have
an extensive outreach process for residents financially impacted by
the pandemic and have created payment plans to assist them.
Results Per Share
The change in EPS for the quarter ended June 30, 2020 compared
to the same period of 2019 is due primarily to lower property sale
gains in the second quarter of 2020, the various adjustment items
listed on page 25 of this release and the items described below.
The change in EPS for the six months ended June 30, 2020 compared
to the same period of 2019 is due primarily to higher property sale
gains in the first six months of 2020, the various adjustment items
listed on page 25 of this release and the items described
below.
The per share changes in FFO for both the quarter and six months
ended June 30, 2020 compared to the same periods of 2019, are due
primarily to the various adjustment items listed on page 25 of this
release and the items described below.
The per share changes in Normalized FFO are due primarily
to:
Positive/(Negative)
Impact
Second Quarter 2020 vs. Second
Quarter 2019
June YTD 2020 vs. June YTD
2019
Same Store Net Operating Income (NOI)
$
(0.04
)
$
(0.01
)
Lease-Up NOI
0.01
0.01
2020 and 2019 transaction activity impact
on NOI, net
(0.01
)
(0.01
)
Interest expense
0.03
0.06
Other items
0.01
—
Net
$
—
$
0.05
The Company has a glossary of defined terms and related
reconciliations of Non-GAAP financial measures on pages 26 through
31 of this release. Reconciliations and definitions of FFO and
Normalized FFO are provided on pages 6, 28 and 29 of this
release.
Same Store Results
The Company has provided a breakout of Residential and
Non-Residential same store results on pages 10 and 11 of this
release with definitions that can be found on page 30 of this
release. Non-Residential operations historically have accounted for
approximately 4.0% of total revenues. The table below reflects same
store Residential only results for the second quarter 2020 to
second quarter 2019 comparison, which includes 74,843 apartment
units, as well as for the six months ended June 30, 2020 to six
months ended June 30, 2019 comparison, which includes 74,264
apartment units. The Company’s Physical Occupancy was 94.9%
compared to 96.5% for the second quarter of 2020 and 2019,
respectively, and 95.7% compared to 96.4% for the first six months
of 2020 and 2019, respectively.
Second Quarter 2020 vs. Second
Quarter 2019
June YTD 2020 vs. June YTD
2019
Revenues
(0.9%)
1.0%
Expenses
(0.1%)
1.1%
NOI
(1.2%)
0.9%
Preliminary July 2020 Residential Same Store Operating
Statistics
The following table includes select statistics for the month of
July 2020 as well as the second quarter of 2020.
July 2020
Second Quarter 2020
New Lease Change
(8.3%)
(7.0%)
Renewal Rate Achieved
(0.9%)
0.7%
Blended Rate (1)
(4.5%)
(2.7%)
Physical Occupancy
95.0%
94.9%
(1) Blended Rate after applying the effect of new move-in and
renewal concessions is approximately (5.5%) and (3.5%) for July
2020 and the second quarter of 2020, respectively, driven by higher
usage in the urban cores of New York, San Francisco and Boston.
The July 2020 results listed above are approximately equal to
the Company's June 2020 results for New Lease Change, Renewal Rate
Achieved and Blended Rate. Concession use is higher in July 2020
than in June 2020.
Investment Activity
The Company sold two apartment properties, consisting of 655
apartment units, during the second quarter of 2020 for an aggregate
sales price of approximately $384.2 million at a weighted average
Disposition Yield of 4.4%, generating an Unlevered IRR of 8.4%. The
properties are located in the San Francisco Bay area and the
Washington, D.C. area and were placed under contract prior to March
1, 2020. During the first six months of 2020, the Company sold five
properties, consisting of 1,552 apartment units, for an aggregate
sales price of approximately $754.4 million at a weighted average
Disposition Yield of 4.7%, generating an Unlevered IRR of 10.8%.
The Company did not acquire any apartment properties during the
first six months of 2020.
Capital Markets Activity
On April 30, 2020, the Company closed on a $495.0 million
secured loan. The loan has a ten-year term, is interest only, and
carries a fixed interest rate of 2.60%. Proceeds from the loan were
used to pay off outstanding balances under the Company’s revolving
line of credit and commercial paper program. As of July 28, 2020,
the Company had no outstanding balances under its revolving credit
facility or commercial paper program and approximately $2.4 billion
in available liquidity.
Third Quarter 2020 Earnings and Conference Call
Equity Residential expects to announce its third quarter 2020
results on Tuesday, October 27, 2020 and host a conference call to
discuss those results at 10:00 a.m. CT on Wednesday, October 28,
2020.
About Equity Residential
Equity Residential is committed to creating communities where
people thrive. The Company, a member of the S&P 500, is focused
on the acquisition, development and management of rental apartment
properties located in urban and high-density suburban communities
where today’s renters want to live, work and play. Equity
Residential owns or has investments in 304 properties consisting of
78,410 apartment units, located in Boston, New York, Washington,
D.C., Seattle, San Francisco, Southern California and Denver. For
more information on Equity Residential, please visit our website at
www.equityapartments.com.
Forward-Looking Statements
In addition to historical information, this press release
contains forward-looking statements and information within the
meaning of the federal securities laws. These statements are based
on current expectations, estimates, projections and assumptions
made by management. While Equity Residential’s management believes
the assumptions underlying its forward-looking statements are
reasonable, such information is inherently subject to uncertainties
and may involve certain risks, including, without limitation,
changes in general market conditions, including the rate of job
growth and cost of labor and construction material, the level of
new multifamily construction and development, competition and local
government regulation. In addition, these forward-looking
statements are subject to risks related to the COVID-19 pandemic,
many of which are unknown, including the duration and severity of
the pandemic, the extent of the adverse health impact on the
general population and on our residents, customers and employees in
particular, its impact on the employment rate and the economy and
the corresponding impact on our residents’ and tenants’ ability to
pay their rent on time or at all, the extent and impact of
governmental responses and the impact of operational changes we
have implemented and may implement in response to the pandemic.
Other risks and uncertainties are described under the heading “Risk
Factors” in our Annual Report on Form 10-K and subsequent periodic
reports filed with the Securities and Exchange Commission (SEC) and
available on our website, www.equityapartments.com. Many of these
uncertainties and risks are difficult to predict and beyond
management’s control. Forward-looking statements are not guarantees
of future performance, results or events. Equity Residential
assumes no obligation to update or supplement forward-looking
statements that become untrue because of subsequent events.
A live web cast of the Company’s conference call discussing
these results will take place tomorrow, Wednesday, July 29, 2020 at
10:00 a.m. CT. Please visit the Investor section of the Company’s
web site at www.equityapartments.com
for the link. A replay of the web cast will be available for two
weeks at this site.
Equity Residential
Consolidated Statements of
Operations
(Amounts in thousands except per
share data)
(Unaudited)
Six Months Ended June
30,
Quarter Ended June 30,
2020
2019
2020
2019
REVENUES
Rental income
$
1,335,837
$
1,331,676
$
653,532
$
669,374
EXPENSES
Property and maintenance
220,268
223,531
104,452
108,461
Real estate taxes and insurance
192,770
182,888
95,038
91,446
Property management
51,317
50,765
23,608
24,369
General and administrative
26,353
29,710
11,835
14,329
Depreciation
418,398
404,723
205,976
200,508
Total expenses
909,106
891,617
440,909
439,113
Net gain (loss) on sales of real estate
properties
352,243
138,835
144,266
138,856
Operating income
778,974
578,894
356,889
369,117
Interest and other income
3,471
1,925
1,511
1,152
Other expenses
(4,227
)
(8,392
)
(1,694
)
(5,117
)
Interest:
Expense incurred, net
(167,475
)
(203,840
)
(81,885
)
(108,902
)
Amortization of deferred financing
costs
(4,152
)
(5,783
)
(2,111
)
(3,647
)
Income before income and other taxes,
income (loss) from
investments in unconsolidated entities and
net gain (loss)
on sales of land parcels
606,591
362,804
272,710
252,603
Income and other tax (expense) benefit
(240
)
(484
)
(187
)
(246
)
Income (loss) from investments in
unconsolidated entities
(2,199
)
68,058
(1,042
)
68,765
Net gain (loss) on sales of land
parcels
—
178
—
177
Net income
604,152
430,556
271,481
321,299
Net (income) loss attributable to
Noncontrolling Interests:
Operating Partnership
(21,248
)
(15,429
)
(9,713
)
(11,510
)
Partially Owned Properties
(13,410
)
(1,620
)
(880
)
(821
)
Net income attributable to controlling
interests
569,494
413,507
260,888
308,968
Preferred distributions
(1,545
)
(1,545
)
(772
)
(772
)
Net income available to Common Shares
$
567,949
$
411,962
$
260,116
$
308,196
Earnings per share – basic:
Net income available to Common Shares
$
1.53
$
1.11
$
0.70
$
0.83
Weighted average Common Shares
outstanding
371,689
369,952
371,795
370,342
Earnings per share – diluted:
Net income available to Common Shares
$
1.53
$
1.11
$
0.70
$
0.83
Weighted average Common Shares
outstanding
386,272
385,644
385,913
386,107
Distributions declared per Common Share
outstanding
$
1.205
$
1.135
$
0.6025
$
0.5675
Equity Residential
Consolidated Statements of
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per
share data)
(Unaudited)
Six Months Ended June
30,
Quarter Ended June 30,
2020
2019
2020
2019
Net income
$
604,152
$
430,556
$
271,481
$
321,299
Net (income) loss attributable to
Noncontrolling Interests – Partially
Owned Properties
(13,410
)
(1,620
)
(880
)
(821
)
Preferred distributions
(1,545
)
(1,545
)
(772
)
(772
)
Net income available to Common Shares and
Units
589,197
427,391
269,829
319,706
Adjustments:
Depreciation
418,398
404,723
205,976
200,508
Depreciation – Non-real estate
additions
(2,307
)
(2,303
)
(1,020
)
(1,121
)
Depreciation – Partially Owned
Properties
(1,686
)
(1,802
)
(830
)
(899
)
Depreciation – Unconsolidated
Properties
1,224
1,772
611
850
Net (gain) loss on sales of unconsolidated
entities - operating
assets
—
(69,522
)
—
(69,522
)
Net (gain) loss on sales of real estate
properties
(352,243
)
(138,835
)
(144,266
)
(138,856
)
Noncontrolling Interests share of gain
(loss) on sales
of real estate properties
11,655
—
—
—
FFO available to Common Shares and
Units
664,238
621,424
330,300
310,666
Adjustments (see note for additional
detail):
Impairment – non-operating assets
—
—
—
—
Write-off of pursuit costs
3,278
2,987
1,651
1,539
Debt extinguishment and preferred share
redemption (gains)
losses
32
16,647
32
16,647
Non-operating asset (gains) losses
670
252
229
23
Other miscellaneous items
(2,310
)
4,418
(1,392
)
2,843
Normalized FFO available to Common Shares
and Units
$
665,908
$
645,728
$
330,820
$
331,718
FFO
$
665,783
$
622,969
$
331,072
$
311,438
Preferred distributions
(1,545
)
(1,545
)
(772
)
(772
)
FFO available to Common Shares and
Units
$
664,238
$
621,424
$
330,300
$
310,666
FFO per share and Unit – basic
$
1.73
$
1.62
$
0.86
$
0.81
FFO per share and Unit – diluted
$
1.72
$
1.61
$
0.86
$
0.80
Normalized FFO
$
667,453
$
647,273
$
331,592
$
332,490
Preferred distributions
(1,545
)
(1,545
)
(772
)
(772
)
Normalized FFO available to Common Shares
and Units
$
665,908
$
645,728
$
330,820
$
331,718
Normalized FFO per share and Unit –
basic
$
1.73
$
1.69
$
0.86
$
0.87
Normalized FFO per share and Unit –
diluted
$
1.72
$
1.67
$
0.86
$
0.86
Weighted average Common Shares and Units
outstanding – basic
384,702
382,854
384,818
383,227
Weighted average Common Shares and Units
outstanding – diluted
386,272
385,644
385,913
386,107
Note: See Adjustments from FFO to Normalized FFO for additional
detail regarding the adjustments from FFO to Normalized FFO. See
Additional Reconciliations and Definitions of Non-GAAP Financial
Measures and Other Terms for the definitions of non-GAAP financial
measures and other terms as well as the reconciliations of EPS to
FFO per share and Normalized FFO per share.
Equity Residential
Consolidated Balance
Sheets
(Amounts in thousands except for
share amounts)
(Unaudited)
June 30,
December 31,
2020
2019
ASSETS
Land
$
5,789,307
$
5,936,188
Depreciable property
20,997,903
21,319,101
Projects under development
274,825
181,630
Land held for development
102,361
96,688
Investment in real estate
27,164,396
27,533,607
Accumulated depreciation
(7,537,713
)
(7,276,786
)
Investment in real estate, net
19,626,683
20,256,821
Investments in unconsolidated entities
55,310
52,238
Cash and cash equivalents
187,416
45,753
Restricted deposits
58,117
71,246
Right-of-use assets
505,077
512,774
Other assets
282,348
233,937
Total assets
$
20,714,951
$
21,172,769
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net
$
2,340,757
$
1,941,610
Notes, net
6,081,102
6,077,513
Line of credit and commercial paper
—
1,017,833
Accounts payable and accrued expenses
109,776
94,350
Accrued interest payable
67,589
66,852
Lease liabilities
330,135
331,334
Other liabilities
315,208
346,963
Security deposits
64,005
70,062
Distributions payable
232,208
218,326
Total liabilities
9,540,780
10,164,843
Commitments and contingencies
Redeemable Noncontrolling Interests –
Operating Partnership
336,695
463,400
Equity:
Shareholders’ equity:
Preferred Shares of beneficial interest,
$0.01 par value;
100,000,000 shares authorized; 745,600
shares issued and
outstanding as of June 30, 2020 and
December 31, 2019
37,280
37,280
Common Shares of beneficial interest,
$0.01 par value;
1,000,000,000 shares authorized;
372,209,012 shares issued
and outstanding as of June 30, 2020 and
371,670,884
shares issued and outstanding as of
December 31, 2019
3,722
3,717
Paid in capital
9,118,332
8,965,577
Retained earnings
1,505,694
1,386,495
Accumulated other comprehensive income
(loss)
(67,355
)
(77,563
)
Total shareholders’ equity
10,597,673
10,315,506
Noncontrolling Interests:
Operating Partnership
235,169
227,837
Partially Owned Properties
4,634
1,183
Total Noncontrolling Interests
239,803
229,020
Total equity
10,837,476
10,544,526
Total liabilities and equity
$
20,714,951
$
21,172,769
Equity Residential
Portfolio Summary
As of June 30, 2020
% of
Stabilized
Average
Apartment
Budgeted
Rental
Markets/Metro Areas
Properties
Units
NOI
Rate
Los Angeles
72
16,603
19.1
%
$
2,590
Orange County
13
4,028
4.4
%
2,263
San Diego
12
3,385
3.8
%
2,426
Subtotal – Southern California
97
24,016
27.3
%
2,511
San Francisco
48
12,707
19.8
%
3,320
Washington DC
47
14,731
15.8
%
2,458
New York
37
9,606
14.6
%
3,909
Seattle
45
9,296
10.9
%
2,466
Boston
25
6,430
10.1
%
3,173
Denver
5
1,624
1.5
%
2,048
Total
304
78,410
100.0
%
$
2,841
Properties
Apartment Units
Wholly Owned Properties
287
74,849
Master-Leased Properties –
Consolidated
1
162
Partially Owned Properties –
Consolidated
16
3,399
304
78,410
Note: Projects under development are not
included in the Portfolio Summary until construction has been
completed.
Equity Residential
Portfolio Rollforward Q2
2020
($ in thousands)
Apartment
Disposition
Properties
Units
Sales Price
Yield
3/31/2020
306
79,065
Dispositions:
Consolidated Rental Properties
(2
)
(655
)
$
(384,161
)
(4.4
%)
6/30/2020
304
78,410
Portfolio Rollforward
2020
($ in thousands)
Apartment
Disposition
Properties
Units
Sales Price
Yield
12/31/2019
309
79,962
Dispositions:
Consolidated Rental Properties
(5
)
(1,552
)
$
(754,361
)
(4.7
%)
6/30/2020
304
78,410
Equity Residential
Second Quarter 2020 vs. Second
Quarter 2019
Same Store Results/Statistics
Including 74,843 Same Store Apartment Units
$ in thousands (except for
Average Rental Rate)
Second Quarter 2020
Second Quarter 2019
Residential
% Change
Non- Residential
% Change
Total
% Change
Residential
Non- Residential
Total
Revenues
$
608,739
(0.9%)
$
14,536
(1)
(39.1%)
$
623,275
(2.3%)
Revenues
$
614,049
$
23,866
$
637,915
Expenses
$
184,824
(0.1%)
$
5,197
(1.0%)
$
190,021
(0.1%)
Expenses
$
185,025
$
5,252
$
190,277
NOI
$
423,915
(1.2%)
$
9,339
(49.8%)
$
433,254
(3.2%)
NOI
$
429,024
$
18,614
$
447,638
Average Rental Rate
$
2,860
0.8%
Average Rental Rate
$
2,836
Physical Occupancy
94.9
%
(1.6%)
Physical Occupancy
96.5
%
Turnover
11.8
%
(1.3%)
Turnover
13.1
%
Second Quarter 2020 vs. First
Quarter 2020
Same Store Results/Statistics
Including 77,809 Same Store Apartment Units
$ in thousands (except for
Average Rental Rate)
Second Quarter 2020
First Quarter 2020
Residential
% Change
Non- Residential
% Change
Total
% Change
Residential
Non- Residential
Total
Revenues
$
629,340
(2.4%)
$
14,766
(1)
(37.1%)
$
644,106
(3.6%)
Revenues
$
644,487
$
23,487
$
667,974
Expenses
$
191,372
(4.5%)
$
5,271
(11.1%)
$
196,643
(4.7%)
Expenses
$
200,347
$
5,932
$
206,279
NOI
$
437,968
(1.4%)
$
9,495
(45.9%)
$
447,463
(3.1%)
NOI
$
444,140
$
17,555
$
461,695
Average Rental Rate
$
2,845
(0.7%)
Average Rental Rate
$
2,866
Physical Occupancy
94.8
%
(1.6%)
Physical Occupancy
96.4
%
Turnover
11.9
%
2.1%
Turnover
9.8
%
(1)
Non-Residential operations have been more
significantly impacted by the COVID-19 pandemic than the Company’s
core Residential business. The decline in Non-Residential revenues
is primarily driven by lower public parking income,
deferral/abatement of rent and higher bad debt expense.
Note: See Additional Reconciliations and Definitions of Non-GAAP
Financial Measures and Other Terms for reconciliations from
operating income.
Equity Residential
June YTD 2020 vs. June YTD
2019
Same Store Results/Statistics
Including 74,264 Same Store Apartment Units
$ in thousands (except for
Average Rental Rate)
June YTD 2020
June YTD 2019
Residential
% Change
Non- Residential
% Change
Total
% Change
Residential
Non- Residential
Total
Revenues
$
1,223,361
1.0%
$
37,464
(1)
(20.4%)
$
1,260,825
0.2%
Revenues
$
1,211,210
$
47,051
$
1,258,261
Expenses
$
375,710
1.1%
$
11,032
3.4%
$
386,742
1.2%
Expenses
$
371,517
$
10,671
$
382,188
NOI
$
847,651
0.9%
$
26,432
(27.3%)
$
874,083
(0.2%)
NOI
$
839,693
$
36,380
$
876,073
Average Rental Rate
$
2,871
1.8%
Average Rental Rate
$
2,821
Physical Occupancy
95.7
%
(0.7%)
Physical Occupancy
96.4
%
Turnover
21.4
%
(1.9%)
Turnover
23.3
%
(1)
Non-Residential operations have been more
significantly impacted by the COVID-19 pandemic than the Company’s
core Residential business. The decline in Non-Residential revenues
is primarily driven by lower public parking income,
deferral/abatement of rent and higher bad debt expense.
Note: See Additional Reconciliations and Definitions of Non-GAAP
Financial Measures and Other Terms for reconciliations from
operating income.
Same Store Resident/Tenant
Accounts Receivable Balances
Including 74,264 Same Store
Apartment Units
$ in thousands
Residential
Non-Residential
June 30, 2020
March 31, 2020
June 30, 2020
March 31, 2020
Resident/tenant accounts receivable
balances
$
18,175
$
5,358
$
4,815
$
2,270
Allowance for doubtful accounts
(6,518
)
(1,850
)
(2,416
)
(1,532
)
Net receivable balances
$
11,657
(2)
$
3,508
$
2,399
$
738
Straight-line receivable balances
$
2,990
$
1,633
$
24,161
$
26,154
(2)
The Company held Residential security
deposits approximating 20% of the net receivable balance at June
30, 2020.
Note: See Additional Reconciliations and Definitions of Non-GAAP
Financial Measures and Other Terms for other definitions.
Equity Residential
Second Quarter 2020 vs. Second
Quarter 2019
Same Store Residential
Results/Statistics by Market
Increase (Decrease) from Prior
Year's Quarter
Markets/Metro Areas
Apartment Units
Q2 2020 % of Actual NOI
Q2 2020 Average Rental Rate
Q2 2020 Weighted Average Physical
Occupancy %
Q2 2020 Turnover
Revenues
Expenses
NOI
Average Rental Rate
Physical Occupancy
Turnover
Los Angeles
15,968
19.5
%
$
2,596
94.7
%
11.9
%
(1.9
%)
(1.7
%)
(1.9
%)
(0.2
%)
(1.6
%)
(2.2
%)
Orange County
4,028
4.8
%
2,263
96.3
%
9.8
%
1.0
%
(0.2
%)
1.4
%
1.2
%
(0.1
%)
(3.9
%)
San Diego
3,385
4.2
%
2,426
96.0
%
11.8
%
0.4
%
1.8
%
(0.1
%)
1.2
%
(0.7
%)
(2.5
%)
Subtotal – Southern California
23,381
28.5
%
2,513
95.1
%
11.5
%
(1.1
%)
(1.1
%)
(1.1
%)
0.1
%
(1.3
%)
(2.6
%)
San Francisco
12,183
20.4
%
3,324
94.9
%
11.6
%
(0.8
%)
2.0
%
(1.7
%)
0.5
%
(1.2
%)
(1.7
%)
Washington DC
13,711
16.1
%
2,465
95.4
%
11.3
%
0.1
%
(2.4
%)
1.1
%
1.5
%
(1.4
%)
(0.9
%)
New York
9,606
14.1
%
3,909
94.1
%
11.5
%
(2.7
%)
1.0
%
(5.4
%)
0.4
%
(3.0
%)
1.2
%
Seattle
8,616
10.2
%
2,469
95.4
%
11.6
%
2.2
%
3.1
%
1.8
%
3.4
%
(1.2
%)
(3.5
%)
Boston
6,346
9.6
%
3,174
93.5
%
13.7
%
(1.2
%)
(2.8
%)
(0.6
%)
1.9
%
(2.9
%)
1.3
%
Denver
1,000
1.1
%
2,173
93.2
%
17.1
%
(3.7
%)
(5.6
%)
(2.9
%)
(1.2
%)
(2.4
%)
0.9
%
Total
74,843
100.0
%
$
2,860
94.9
%
11.8
%
(0.9
%)
(0.1
%)
(1.2
%)
0.8
%
(1.6
%)
(1.3
%)
Note: The above table reflects Residential same store results
only, which historically account for approximately 96.0% of total
revenues.
Equity Residential
Second Quarter 2020 vs. First
Quarter 2020
Same Store Residential
Results/Statistics by Market
Increase (Decrease) from Prior
Quarter
Markets/Metro Areas
Apartment Units
Q2 2020 % of Actual NOI
Q2 2020 Average Rental Rate
Q2 2020 Weighted Average Physical
Occupancy %
Q2 2020 Turnover
Revenues
Expenses
NOI
Average Rental Rate
Physical Occupancy
Turnover
Los Angeles
16,603
19.5
%
$
2,590
94.6
%
12.1
%
(3.1
%)
(5.1
%)
(2.3
%)
(1.7
%)
(1.3
%)
0.8
%
Orange County
4,028
4.7
%
2,263
96.3
%
9.8
%
(1.4
%)
(4.2
%)
(0.5
%)
(0.8
%)
(0.5
%)
0.8
%
San Diego
3,385
4.0
%
2,426
96.0
%
11.8
%
(1.4
%)
(3.3
%)
(0.8
%)
(0.7
%)
(0.8
%)
(0.2
%)
Subtotal – Southern California
24,016
28.2
%
2,511
95.1
%
11.6
%
(2.6
%)
(4.8
%)
(1.8
%)
(1.5
%)
(1.1
%)
0.6
%
San Francisco
12,707
20.5
%
3,320
94.8
%
11.7
%
(2.5
%)
(3.5
%)
(2.2
%)
(0.6
%)
(1.9
%)
2.0
%
Washington DC
14,569
16.5
%
2,458
95.4
%
11.3
%
(0.6
%)
(6.0
%)
1.8
%
0.3
%
(0.8
%)
2.7
%
New York
9,606
13.6
%
3,909
94.1
%
11.5
%
(3.5
%)
(6.2
%)
(1.3
%)
(0.9
%)
(2.6
%)
4.3
%
Seattle
8,941
10.3
%
2,480
95.3
%
11.7
%
(1.9
%)
3.4
%
(3.8
%)
(0.1
%)
(1.8
%)
0.6
%
Boston
6,346
9.3
%
3,174
93.5
%
13.7
%
(2.7
%)
(5.7
%)
(1.4
%)
(0.2
%)
(2.3
%)
4.6
%
Denver
1,624
1.6
%
2,048
94.1
%
17.1
%
(1.8
%)
(5.6
%)
(0.3
%)
(0.3
%)
(1.4
%)
2.7
%
Total
77,809
100.0
%
$
2,845
94.8
%
11.9
%
(2.4
%)
(4.5
%)
(1.4
%)
(0.7
%)
(1.6
%)
2.1
%
Note: The above table reflects Residential same store results
only, which historically account for approximately 96.0% of total
revenues.
Equity Residential
June YTD 2020 vs. June YTD
2019
Same Store Residential
Results/Statistics by Market
Increase (Decrease) from Prior
Year
Markets/Metro Areas
Apartment
Units
June YTD 20 % of Actual NOI
June YTD 20 Average Rental
Rate
June YTD 20 Weighted Average
Physical Occupancy %
June YTD 20
Turnover
Revenues
Expenses
NOI
Average Rental Rate
Physical Occupancy
Turnover
Los Angeles
15,968
19.7
%
$
2,615
95.3
%
23.2
%
0.1
%
(0.3
%)
0.2
%
1.0
%
(0.9
%)
(2.6
%)
Orange County
4,028
4.8
%
2,272
96.6
%
18.8
%
2.2
%
0.2
%
2.8
%
2.0
%
0.2
%
(5.4
%)
San Diego
3,385
4.2
%
2,435
96.4
%
23.7
%
1.9
%
2.1
%
1.9
%
2.0
%
0.0
%
(2.7
%)
Subtotal – Southern California
23,381
28.7
%
2,529
95.7
%
22.5
%
0.7
%
0.1
%
0.9
%
1.3
%
(0.6
%)
(3.1
%)
San Francisco
12,183
20.7
%
3,334
95.8
%
21.1
%
1.1
%
2.9
%
0.5
%
1.7
%
(0.6
%)
(1.9
%)
Washington DC
13,711
16.0
%
2,463
95.9
%
19.8
%
1.3
%
(0.1
%)
1.9
%
2.1
%
(0.7
%)
(0.8
%)
New York
9,475
14.0
%
3,930
95.4
%
18.7
%
(0.3
%)
2.4
%
(2.4
%)
1.1
%
(1.3
%)
0.4
%
Seattle
8,442
10.2
%
2,469
96.3
%
22.9
%
3.8
%
2.7
%
4.2
%
3.9
%
(0.1
%)
(5.1
%)
Boston
6,346
9.7
%
3,178
94.7
%
22.7
%
1.0
%
(1.9
%)
2.2
%
2.6
%
(1.4
%)
1.2
%
Denver
726
0.7
%
2,133
94.5
%
30.6
%
(1.2
%)
(0.3
%)
(1.5
%)
0.6
%
(1.9
%)
0.0
%
Total
74,264
100.0
%
$
2,871
95.7
%
21.4
%
1.0
%
1.1
%
0.9
%
1.8
%
(0.7
%)
(1.9
%)
Note: The above table reflects Residential same store results
only, which historically account for approximately 96.0% of total
revenues.
Equity Residential
Same Store Residential Lease
Pricing Statistics
For 74,264 Same Store
Apartment Units
New Lease Change (1)
Renewal Rate Achieved (1)
Blended Rate (1)
Markets/Metro Areas
Q2 2020
Q2 2019
Q2 2020
Q2 2019
Q2 2020
Q2 2019
Los Angeles
(6.7
%)
0.4
%
0.4
%
5.2
%
(3.0
%)
2.7
%
Orange County
(5.1
%)
1.8
%
0.9
%
6.0
%
(1.5
%)
4.0
%
San Diego
(3.5
%)
3.4
%
0.1
%
6.0
%
(1.5
%)
4.6
%
Subtotal – Southern California
(6.0
%)
1.1
%
0.5
%
5.4
%
(2.6
%)
3.1
%
San Francisco
(9.6
%)
4.5
%
(0.5
%)
5.6
%
(4.6
%)
5.1
%
Washington DC
(5.3
%)
2.5
%
1.2
%
4.5
%
(1.6
%)
3.5
%
New York
(8.0
%)
0.7
%
1.2
%
4.0
%
(2.0
%)
2.7
%
Seattle
(3.4
%)
2.9
%
0.7
%
5.6
%
(0.8
%)
4.3
%
Boston
(9.6
%)
3.1
%
1.4
%
5.3
%
(3.9
%)
4.2
%
Denver
(2.8
%)
2.5
%
1.1
%
4.4
%
(1.3
%)
3.2
%
Total
(7.0
%)
2.3
%
0.7
%
5.0
%
(2.7
%)
(2)
3.7
%
(1)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
definitions.
(2)
Blended Rate after applying the effect of
new move-in and renewal concessions is approximately (3.5%) for Q2
2020, driven by higher usage in the urban cores of New York, San
Francisco and Boston. The effect of new move-in and renewal
concessions in Q2 2019 was immaterial.
Equity Residential
Second Quarter 2020 vs. Second
Quarter 2019
Total Same Store Operating
Expenses Including 74,843 Same Store Apartment Units
$ in thousands
Actual Q2 2020
Actual Q2 2019
$ Change (1)
% Change
% of Actual Q2 2020 Operating
Expenses
Real estate taxes
$
85,433
$
82,534
$
2,899
3.5
%
45.0
%
On-site payroll
39,861
40,827
(966
)
(2.4
%)
21.0
%
Utilities
24,018
23,756
262
1.1
%
12.6
%
Repairs and maintenance
21,977
24,799
(2,822
)
(11.4
%)
11.6
%
Insurance
6,125
5,209
916
17.6
%
3.2
%
Leasing and advertising
2,150
2,473
(323
)
(13.1
%)
1.1
%
Other on-site operating expenses
10,457
10,679
(222
)
(2.1
%)
5.5
%
Total Same Store Operating Expenses
(2)
(includes Residential and
Non-Residential)
$
190,021
$
190,277
$
(256
)
(0.1
%)
100.0
%
June YTD 2020 vs. June YTD
2019
Total Same Store Operating
Expenses Including 74,264 Same Store Apartment Units
$ in thousands
Actual YTD 2020
Actual YTD 2019
$ Change (1)
% Change
% of Actual YTD 2020 Operating
Expenses
Real estate taxes
$
170,416
$
164,075
$
6,341
3.9
%
44.1
%
On-site payroll
81,249
81,757
(508
)
(0.6
%)
21.0
%
Utilities
50,654
49,787
867
1.7
%
13.1
%
Repairs and maintenance
44,497
48,027
(3,530
)
(7.4
%)
11.5
%
Insurance
12,187
10,365
1,822
17.6
%
3.2
%
Leasing and advertising
4,385
4,917
(532
)
(10.8
%)
1.1
%
Other on-site operating expenses
23,354
23,260
94
0.4
%
6.0
%
Total Same Store Operating Expenses
(2)
(includes Residential and
Non-Residential)
$
386,742
$
382,188
$
4,554
1.2
%
100.0
%
(1)
The quarter over quarter and YTD over YTD
changes are due primarily to:
Real estate taxes – Higher rates and
assessed values continue to drive real estate tax growth across
most markets with a slight improvement from previous expectations
caused by successful appeals activity and lower than expected rate
growth in New York.
On-site payroll – Results better than
expectations due to faster than anticipated progress in transition
to enhanced operating platform, lower than expected employee
benefit-related costs and less overtime, partially offset by
one-time frontline worker bonuses.
Utilities – Growth lower than expected due
to warmer winter weather and energy rate decreases.
Repairs and maintenance – Decrease
primarily driven by deferral and cancellation of some projects as a
result of COVID-19-related delays.
Insurance – Increase due to higher
premiums on property insurance renewal caused by challenging
conditions in the insurance market.
Leasing and advertising – Decrease greater
than expectations due in part to suspension of resident
activities.
(2)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
additional details.
Equity Residential
Debt Summary as of June 30,
2020
($ in thousands)
Debt Balances (1)
% of Total
Weighted Average Rates (1)
Weighted
Average Maturities (years)
Secured
$
2,340,757
27.8
%
3.51
%
7.0
Unsecured
6,081,102
72.2
%
3.85
%
10.3
Total
$
8,421,859
100.0
%
3.77
%
9.4
Fixed Rate Debt:
Secured – Conventional
$
1,972,862
23.4
%
3.94
%
5.4
Unsecured – Public
6,081,102
72.2
%
4.06
%
10.3
Fixed Rate Debt
8,053,964
95.6
%
4.03
%
9.1
Floating Rate Debt:
Secured – Conventional
7,315
0.1
%
3.35
%
2.0
Secured – Tax Exempt
360,580
4.3
%
1.49
%
15.5
Unsecured – Revolving Credit Facility
—
—
1.47
%
4.3
Unsecured – Commercial Paper Program
(2)
—
—
1.81
%
—
Floating Rate Debt
367,895
4.4
%
1.68
%
15.2
Total
$
8,421,859
100.0
%
3.77
%
9.4
(1)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
additional details.
(2)
The weighted average amount outstanding
for the six months ended June 30, 2020 was approximately $522.7
million.
Note: The Company capitalized interest of approximately $4.1
million and $2.7 million during the six months ended June 30, 2020
and 2019, respectively. The Company capitalized interest of
approximately $2.3 million and $1.5 million during the quarters
ended June 30, 2020 and 2019, respectively.
Equity Residential
Debt Maturity Schedule as of
June 30, 2020
($ in thousands)
Year
Fixed Rate
Floating Rate
Total
% of Total
Weighted Average Coupons on Fixed
Rate Debt (1)
Weighted Average Coupons on Total
Debt (1)
2020
$
23,669
$
—
$
23,669
0.3
%
4.75
%
4.75
%
2021
834,904
—
834,904
9.8
%
4.63
%
4.63
%
2022
264,185
7,796
271,981
3.2
%
3.25
%
3.22
%
2023
1,325,588
3,500
1,329,088
15.6
%
3.74
%
3.73
%
2024
—
6,100
6,100
0.1
%
N/A
0.15
%
2025
450,000
8,200
458,200
5.4
%
3.38
%
3.32
%
2026
592,025
9,000
601,025
7.0
%
3.58
%
3.53
%
2027
400,000
9,800
409,800
4.8
%
3.25
%
3.18
%
2028
900,000
42,380
942,380
11.1
%
3.79
%
3.62
%
2029
888,120
11,500
899,620
10.6
%
3.30
%
3.26
%
2030+
2,445,850
288,135
2,733,985
32.1
%
3.56
%
3.21
%
Subtotal
8,124,341
386,411
8,510,752
100.0
%
3.67
%
3.51
%
Deferred Financing Costs and
Unamortized (Discount)
(70,377
)
(18,516
)
(88,893
)
N/A
N/A
N/A
Total
$
8,053,964
$
367,895
$
8,421,859
100.0
%
3.67
%
3.51
%
(1)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
additional details.
Equity Residential
Selected Unsecured Public Debt
Covenants
June 30,
March 31,
2020
2020
Debt to Adjusted Total Assets (not to
exceed 60%)
31.8%
32.5%
Secured Debt to Adjusted Total Assets (not
to exceed 40%)
9.7%
8.2%
Consolidated Income Available for Debt
Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1)
4.96
5.09
Total Unencumbered Assets to Unsecured
Debt
(must be at least 125%)
439.5%
408.3%
Note: These selected covenants represent the most restrictive
financial covenants relating to ERP Operating Limited Partnership's
("ERPOP") outstanding public debt securities. Equity Residential is
the general partner of ERPOP.
Selected Credit Ratios
June 30,
March 31,
2020
2020
Total debt to Normalized EBITDAre
4.82x
4.91x
Net debt to Normalized EBITDAre
4.71x
4.86x
Unencumbered NOI as a % of total NOI
85.8%
87.2%
Note: See Normalized EBITDAre Reconciliations for detail.
Equity Residential
Capital Structure as of June
30, 2020
(Amounts in thousands except for
share/unit and per share amounts)
Secured Debt
$
2,340,757
27.8
%
Unsecured Debt
6,081,102
72.2
%
Total Debt
8,421,859
100.0
%
27.0
%
Common Shares (includes Restricted
Shares)
372,209,012
96.4
%
Units (includes OP Units and Restricted
Units)
13,879,951
3.6
%
Total Shares and Units
386,088,963
100.0
%
Common Share Price at June 30, 2020
$
58.82
22,709,753
99.8
%
Perpetual Preferred Equity (see below)
37,280
0.2
%
Total Equity
22,747,033
100.0
%
73.0
%
Total Market Capitalization
$
31,168,892
100.0
%
Perpetual Preferred Equity as
of June 30, 2020
(Amounts in thousands except for
share and per share amounts)
Series
Call Date
Outstanding Shares
Liquidation Value
Annual Dividend Per
Share
Annual Dividend Amount
Preferred Shares:
8.29% Series K
12/10/26
745,600
$
37,280
$
4.145
$
3,091
Equity Residential
Common Share and Unit
Weighted Average Amounts
Outstanding
June YTD 2020
June YTD 2019
Q2 2020
Q2 2019
Weighted Average Amounts Outstanding
for Net Income Purposes:
Common Shares - basic
371,688,567
369,952,087
371,795,049
370,342,189
Shares issuable from assumed
conversion/vesting of:
- OP Units
13,013,343
12,902,350
13,022,786
12,885,175
- long-term compensation shares/units
1,570,149
2,789,234
1,095,436
2,879,255
Total Common Shares and Units -
diluted
386,272,059
385,643,671
385,913,271
386,106,619
Weighted Average Amounts Outstanding
for FFO and Normalized FFO Purposes:
Common Shares - basic
371,688,567
369,952,087
371,795,049
370,342,189
OP Units - basic
13,013,343
12,902,350
13,022,786
12,885,175
Total Common Shares and OP Units -
basic
384,701,910
382,854,437
384,817,835
383,227,364
Shares issuable from assumed
conversion/vesting of:
- long-term compensation shares/units
1,570,149
2,789,234
1,095,436
2,879,255
Total Common Shares and Units -
diluted
386,272,059
385,643,671
385,913,271
386,106,619
Period Ending Amounts
Outstanding:
Common Shares (includes Restricted
Shares)
372,209,012
370,838,810
Units (includes OP Units and Restricted
Units)
13,879,951
13,855,684
Total Shares and Units
386,088,963
384,694,494
Equity Residential
Development and Lease-Up
Projects as of June 30, 2020
(Amounts in thousands except for
project and apartment unit amounts)
Total
Total
Total
Book
No. of
Budgeted
Book
Value Not
Estimated/Actual (A)
Apartment
Capital
Value
to
Placed in
Total
Percentage
Initial
Completion
Stabilization
Percentage
Percentage
Projects
Location
Units
Cost
Date
Service
Debt
Completed
Occupancy
Date
Date
Leased
Occupied
Projects Under
Development - Wholly Owned:
Alcott Apartments (fka West End Tower)
(B)
Boston, MA
470
$
409,749
$
190,391
$
190,391
$
—
46%
Q2 2021
Q3 2021
Q1 2023
—
—
The Edge (fka 4885 Edgemoor Lane) (C)
Bethesda, MD
154
75,271
25,306
25,306
—
28%
Q3 2021
Q3 2021
Q3 2022
—
—
Projects Under Development - Wholly
Owned
624
485,020
215,697
215,697
—
Projects Under
Development - Partially Owned:
Aero Apartments (D)
Alameda, CA
200
117,794
59,128
59,128
7,315
41%
Q4 2020
Q2 2021
Q2 2022
—
—
Projects Under Development - Partially
Owned
200
117,794
59,128
59,128
7,315
Projects Under Development
824
602,814
274,825
274,825
7,315
Projects
Completed and Stabilized During the Quarter - Wholly
Owned:
Lofts at Kendall Square II (fka 249 Third
Street)
Cambridge, MA
84
47,447
46,789
—
—
Q3 2019
Q3 2019
Q2 2020
93%
88%
Chloe on Madison (fka 1401 E. Madison)
Seattle, WA
137
64,791
64,097
—
—
Q3 2019
Q3 2019
Q2 2020
99%
99%
Projects Completed and Stabilized
During the Quarter - Wholly Owned
221
112,238
110,886
—
—
Total Development Projects
1,045
$
715,052
$
385,711
$
274,825
$
7,315
Land Held for Development
N/A
N/A
$
102,361
$
102,361
$
—
NOI CONTRIBUTION FROM DEVELOPMENT
PROJECTS
Total
Budgeted
Capital
Q2 2020
Cost
NOI
Projects Under Development
$
602,814
$
—
Projects Completed and Stabilized During
the Quarter
112,238
1,252
Total Development NOI Contribution
$
715,052
$
1,252
(A)
Estimated dates and Total Budgeted Capital
Costs for projects under development currently remain unchanged
from the Company’s first quarter 2020 Earnings Release. The Company
will reevaluate these dates and costs as the impact from the
COVID-19 pandemic becomes clearer.
(B)
Alcott Apartments – Work at this project
resumed on May 19, 2020 after a nine-week suspension due to the
city of Boston’s COVID-19-related temporary construction
moratorium.
(C)
The Edge – The land under this project is
subject to a long-term ground lease. This project is adjacent to an
existing apartment property owned by the Company.
(D)
Aero Apartments – This development project
is owned 90% by the Company and 10% by a third party partner in a
joint venture consolidated by the Company. Construction is being
partially funded with a construction loan that is non-recourse to
the Company. The joint venture partner has funded $4.6 million for
its allocated share of the project equity and serves as the
developer of the project.
Equity Residential
Capital Expenditures to Real
Estate
For the Six Months Ended June
30, 2020
(Amounts in thousands except for
apartment unit and per apartment unit amounts)
Same Store
Non-Same Store
Same Store Avg.
Properties
Properties/Other
Total
Per Apartment Unit
Total Apartment Units
74,264
4,146
78,410
Building Improvements
$
29,657
$
1,387
$
31,044
$
399
Renovation Expenditures (1)
15,022
6
15,028
202
Replacements
14,955
238
15,193
202
Capital Expenditures to Real Estate
(2)
$
59,634
$
1,631
$
61,265
$
803
(1)
Renovation Expenditures on 658 same store
apartment units for the six months ended June 30, 2020 approximated
$22,830 per apartment unit renovated.
(2)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
additional details.
Equity Residential
Normalized EBITDAre
Reconciliations
(Amounts in thousands)
Trailing Twelve Months
2020
2019
June 30, 2020
March 31, 2020
Q2
Q1
Q4
Q3
Q2
Net income
$
1,183,304
$
1,233,122
$
271,481
$
332,671
$
301,306
$
277,846
$
321,299
Interest expense incurred, net
353,711
380,728
81,885
85,590
100,300
85,936
108,902
Amortization of deferred financing
costs
10,039
11,575
2,111
2,041
3,006
2,881
3,647
Amortization of above/below market lease
intangibles
4,391
4,391
1,098
1,097
1,098
1,098
1,098
Depreciation
844,758
839,290
205,976
212,422
214,882
211,478
200,508
Income and other tax expense (benefit)
(2,525
)
(2,466
)
187
53
(3,030
)
265
246
EBITDA
2,393,678
2,466,640
562,738
633,874
617,562
579,504
635,700
Net (gain) loss on sales of real estate
properties
(661,045
)
(655,635
)
(144,266
)
(207,977
)
(178,237
)
(130,565
)
(138,856
)
Net (gain) loss on sales of unconsolidated
entities - operating assets
—
(69,522
)
—
—
—
—
(69,522
)
EBITDAre
1,732,633
1,741,483
418,472
425,897
439,325
448,939
427,322
Write-off of pursuit costs (other
expenses)
5,820
5,708
1,651
1,627
1,431
1,111
1,539
(Income) loss from investments in
unconsolidated entities - operations
4,312
4,027
1,042
1,157
961
1,152
757
Net (gain) loss on sales of land
parcels
(1,866
)
(2,043
)
—
—
33
(1,899
)
(177
)
Insurance/litigation settlement or reserve
income (interest and other income)
(2,350
)
(1,966
)
(767
)
(1,582
)
(1
)
—
(383
)
Insurance/litigation/environmental
settlement or reserve expense (other expenses)
3,454
7,111
(1,956
)
163
5,229
18
1,701
Advocacy contributions (other
expenses)
2,423
771
1,852
501
65
5
200
Data analytics project (other
expenses)
1,416
2,824
—
—
—
1,416
1,408
Other
3
441
(521
)
—
(158
)
682
(83
)
Normalized EBITDAre
$
1,745,845
$
1,758,356
$
419,773
$
427,763
$
446,885
$
451,424
$
432,284
Balance Sheet Items:
June 30, 2020
March 31, 2020
Total debt
$
8,421,859
$
8,632,704
Cash and cash equivalents
(187,416
)
(82,335
)
Mortgage principal reserves/sinking
funds
(11,895
)
(10,755
)
Net debt
$
8,222,548
$
8,539,614
Note:
EBITDA, EBITDAre and Normalized EBITDAre
do not include any adjustments for the Company’s share of partially
owned unconsolidated entities or the minority partner’s share of
partially owned consolidated entities due to the immaterial size of
the Company’s partially owned portfolio.
Equity Residential
Adjustments from FFO to
Normalized FFO
(Amounts in thousands)
Six Months Ended June
30,
Quarter Ended June 30,
2020
2019
Variance
2020
2019
Variance
Impairment – non-operating assets
$
—
$
—
$
—
$
—
$
—
$
—
Write-off of pursuit costs (other
expenses)
3,278
2,987
291
1,651
1,539
112
Write-off of unamortized deferred
financing costs (interest expense)
32
1,506
(1,474
)
32
1,506
(1,474
)
Write-off of unamortized
(premiums)/discounts/OCI (interest expense)
—
15,141
(15,141
)
—
15,141
(15,141
)
Debt extinguishment and preferred share
redemption (gains) losses
32
16,647
(16,615
)
32
16,647
(16,615
)
Net (gain) loss on sales of land
parcels
—
(178
)
178
—
(177
)
177
(Income) loss from investments in
unconsolidated entities ─ non-operating assets
670
430
240
229
200
29
Non-operating asset (gains) losses
670
252
418
229
23
206
Insurance/litigation settlement or reserve
income (interest and other income)
(2,349
)
(383
)
(1,966
)
(767
)
(383
)
(384
)
Insurance/litigation/environmental
settlement or reserve expense (other expenses)
(1,793
)
1,951
(3,744
)
(1,956
)
1,701
(3,657
)
Advocacy contributions (other
expenses)
2,353
200
2,153
1,852
200
1,652
Data analytics project (other
expenses)
—
2,783
(2,783
)
—
1,408
(1,408
)
Other
(521
)
(133
)
(388
)
(521
)
(83
)
(438
)
Other miscellaneous items
(2,310
)
4,418
(6,728
)
(1,392
)
2,843
(4,235
)
Adjustments from FFO to Normalized FFO
$
1,670
$
24,304
$
(22,634
)
$
520
$
21,052
$
(20,532
)
Note:
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for the
definitions of non-GAAP financial measures and other terms as well
as the reconciliations of EPS to FFO per share and Normalized FFO
per share.
Equity Residential
Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms
(Amounts in thousands except per
share and per apartment unit data)
(All per share data is
diluted)
This Earnings Release and Supplemental Financial Information
includes certain non-GAAP financial measures and other terms that
management believes are helpful in understanding our business. The
definitions and calculations of these non-GAAP financial measures
and other terms may differ from the definitions and methodologies
used by other real estate investment trusts (“REIT”) and,
accordingly, may not be comparable. These non-GAAP financial
measures should not be considered as an alternative to net earnings
or any other measurement of performance computed in accordance with
accounting principles generally accepted in the United States
(“GAAP”) or as an alternative to cash flows from specific
operating, investing or financing activities. Furthermore, these
non-GAAP financial measures are not intended to be a measure of
cash flow or liquidity.
Acquisition Capitalization Rate or Cap Rate – NOI that
the Company anticipates receiving in the next 12 months (or the
year two or three stabilized NOI for properties that are in
lease-up at acquisition) less an estimate of property management
costs/management fees allocated to the project (generally ranging
from 2.0% to 4.0% of revenues depending on the size and income
streams of the asset) and less an estimate for in-the-unit
replacement capital expenditures (generally ranging from $100-$450
per apartment unit depending on the age and condition of the asset)
divided by the gross purchase price of the asset. The weighted
average Acquisition Cap Rate for acquired properties is weighted
based on the projected NOI streams and the relative purchase price
for each respective property.
Average Rental Rate – Total Residential rental revenues
reflected on a straight-line basis in accordance with GAAP divided
by the weighted average occupied apartment units for the reporting
period presented.
Blended Rate – The weighted average of New Lease Change
and Renewal Rate Achieved.
Capital Expenditures to Real
Estate:
Building Improvements – Includes roof
replacement, paving, building mechanical equipment systems,
exterior siding and painting, major landscaping, furniture,
fixtures and equipment for amenities and common areas, vehicles and
office and maintenance equipment.
Renovation Expenditures – Apartment
unit renovation costs (primarily kitchens and baths) designed to
reposition these units for higher rental levels in their respective
markets.
Replacements – Includes appliances,
mechanical equipment, fixtures and flooring (including hardwood and
carpeting).
Debt Balances:
Commercial Paper Program – The Company
may borrow up to a maximum of $1.0 billion under its commercial
paper program subject to market conditions. The notes bear interest
at various floating rates.
Revolving Credit Facility – The
Company’s $2.5 billion unsecured revolving credit facility matures
November 1, 2024. The interest rate on advances under the facility
will generally be LIBOR plus a spread (currently 0.775%), or based
on bids received from the lending group, and an annual facility fee
(currently 0.125%). Both the spread and the facility fee are
dependent on the Company’s senior unsecured credit rating. In
addition, the Company limits its utilization of the facility in
order to maintain liquidity to support its $1.0 billion commercial
paper program along with certain other obligations. The following
table presents the availability on the Company’s unsecured
revolving credit facility:
June 30, 2020
Unsecured revolving credit facility
commitment
$
2,500,000
Commercial paper balance outstanding
—
Unsecured revolving credit facility
balance outstanding
—
Other restricted amounts
(100,949
)
Unsecured revolving credit facility
availability
$
2,399,051
Debt Covenant Compliance – Our unsecured debt includes
certain financial and operating covenants including, among other
things, maintenance of certain financial ratios. These provisions
are contained in the indentures applicable to each notes payable or
the credit agreement for our line of credit. The Debt Covenant
Compliance ratios that are provided show the Company's compliance
with certain covenants governing our public unsecured debt. These
covenants generally reflect our most restrictive financial
covenants. The Company was in compliance with its unsecured debt
covenants for all periods presented.
Development Yield – NOI that the Company anticipates
receiving in the next 12 months following stabilization less an
estimate of property management costs/management fees allocated to
the project (generally ranging from 2.0% to 4.0% of revenues
depending on the size and income streams of the asset) and less an
estimate for in-the-unit replacement capital expenditures
(generally ranging from $50-$150 per apartment unit depending on
the type of asset) divided by the Total Budgeted Capital Cost of
the asset. The weighted average Development Yield for development
properties is weighted based on the projected NOI streams and the
relative Total Budgeted Capital Cost for each respective
property.
Disposition Yield – NOI that the Company anticipates
giving up in the next 12 months less an estimate of property
management costs/management fees allocated to the project
(generally ranging from 2.0% to 4.0% of revenues depending on the
size and income streams of the asset) and less an estimate for
in-the-unit replacement capital expenditures (generally ranging
from $100-$450 per apartment unit depending on the age and
condition of the asset) divided by the gross sales price of the
asset. The weighted average Disposition Yield for sold properties
is weighted based on the projected NOI streams and the relative
sales price for each respective property.
Earnings Per Share ("EPS") – Net income per share
calculated in accordance with GAAP. Expected EPS is calculated on a
basis consistent with actual EPS. Due to the uncertain timing and
extent of property dispositions and the resulting gains/losses on
sales, actual EPS could differ materially from expected EPS.
EBITDA for Real Estate and Normalized
EBITDA for Real Estate:
Earnings Before Interest, Taxes,
Depreciation and Amortization for Real Estate (“EBITDAre”) –
The National Association of Real Estate Investment Trusts
(“Nareit”) defines EBITDAre (September 2017 White Paper) as net
income (computed in accordance with GAAP) before interest expense,
income taxes, depreciation and amortization expense, and further
adjusted for gains and losses from sales of depreciated operating
properties, impairment write-downs of depreciated operating
properties, impairment write-downs of investments in unconsolidated
entities caused by a decrease in value of depreciated operating
properties within the joint venture and adjustments to reflect the
Company’s share of EBITDAre of investments in unconsolidated
entities.
The Company believes that EBITDAre is useful
to investors, creditors and rating agencies as a supplemental
measure of the Company’s ability to incur and service debt because
it is a recognized measure of performance by the real estate
industry, and by excluding gains or losses related to sales or
impairment of depreciated operating properties, EBITDAre can help
compare the Company’s credit strength between periods or as
compared to different companies.
Normalized Earnings Before Interest,
Taxes, Depreciation and Amortization for Real Estate (“Normalized
EBITDAre”) – Represents net income (computed in accordance with
GAAP) before interest expense, income taxes, depreciation and
amortization expense, and further adjusted for non-comparable
items. Normalized EBITDAre, total debt to Normalized EBITDAre and
net debt to Normalized EBITDAre are important metrics in evaluating
the credit strength of the Company and its ability to service its
debt obligations. The Company believes that Normalized EBITDAre,
total debt to Normalized EBITDAre, and net debt to Normalized
EBITDAre are useful to investors, creditors and rating agencies
because they allow investors to compare the Company’s credit
strength to prior reporting periods and to other companies without
the effect of items that by their nature are not comparable from
period to period and tend to obscure the Company’s actual credit
quality.
Economic Gain (Loss) – Economic Gain (Loss) is calculated
as the net gain (loss) on sales of real estate properties in
accordance with GAAP, excluding accumulated depreciation. The
Company generally considers Economic Gain (Loss) to be an
appropriate supplemental measure to net gain (loss) on sales of
real estate properties in accordance with GAAP because it is one
indication of the gross value created by the Company's acquisition,
development, renovation, management and ultimate sale of a property
and because it helps investors to understand the relationship
between the cash proceeds from a sale and the cash invested in the
sold property. The following table presents a reconciliation of net
gain (loss) on sales of real estate properties in accordance with
GAAP to Economic Gain (Loss):
Six Months Ended June 30,
2020
Quarter Ended June 30,
2020
Net Gain (Loss) on Sales of Real Estate
Properties
$
352,243
$
144,266
Accumulated Depreciation Gain
(157,471
)
(88,555
)
Economic Gain (Loss)
$
194,772
$
55,711
FFO and Normalized FFO:
Funds From Operations (“FFO”) – Nareit defines FFO
(December 2018 White Paper) as net income (computed in accordance
with GAAP), excluding gains or losses from sales and impairment
write-downs of depreciable real estate and land when connected to
the main business of a REIT, impairment write-downs of investments
in entities when the impairment is directly attributable to
decreases in the value of depreciable real estate held by the
entity and depreciation and amortization related to real estate.
Adjustments for partially owned consolidated and unconsolidated
partnerships and joint ventures are calculated to reflect FFO on
the same basis. Expected FFO per share is calculated on a basis
consistent with actual FFO per share and is considered an
appropriate supplemental measure of expected operating performance
when compared to expected EPS.
The Company believes that FFO and FFO available to Common Shares
and Units are helpful to investors as supplemental measures of the
operating performance of a real estate company, because they are
recognized measures of performance by the real estate industry and
by excluding gains or losses from sales and impairment write-downs
of depreciable real estate and excluding depreciation related to
real estate (which can vary among owners of identical assets in
similar condition based on historical cost accounting and useful
life estimates), FFO and FFO available to Common Shares and Units
can help compare the operating performance of a company’s real
estate between periods or as compared to different companies.
Normalized Funds From Operations ("Normalized FFO") –
Normalized FFO begins with FFO and excludes:
- the impact of any expenses relating to non-operating asset
impairment;
- pursuit cost write-offs;
- gains and losses from early debt extinguishment and preferred
share redemptions;
- gains and losses from non-operating assets; and
- other miscellaneous items.
Expected Normalized FFO per share is calculated on a basis
consistent with actual Normalized FFO per share and is considered
an appropriate supplemental measure of expected operating
performance when compared to expected EPS.
The Company believes that Normalized FFO and Normalized FFO
available to Common Shares and Units are helpful to investors as
supplemental measures of the operating performance of a real estate
company because they allow investors to compare the Company's
operating performance to its performance in prior reporting periods
and to the operating performance of other real estate companies
without the effect of items that by their nature are not comparable
from period to period and tend to obscure the Company's actual
operating results.
FFO, FFO available to Common Shares and Units, Normalized FFO
and Normalized FFO available to Common Shares and Units do not
represent net income, net income available to Common Shares or net
cash flows from operating activities in accordance with GAAP.
Therefore, FFO, FFO available to Common Shares and Units,
Normalized FFO and Normalized FFO available to Common Shares and
Units should not be exclusively considered as alternatives to net
income, net income available to Common Shares or net cash flows
from operating activities as determined by GAAP or as a measure of
liquidity. The Company's calculation of FFO, FFO available to
Common Shares and Units, Normalized FFO and Normalized FFO
available to Common Shares and Units may differ from other real
estate companies due to, among other items, variations in cost
capitalization policies for capital expenditures and, accordingly,
may not be comparable to such other real estate companies.
FFO available to Common Shares and Units and Normalized FFO
available to Common Shares and Units are calculated on a basis
consistent with net income available to Common Shares and reflects
adjustments to net income for preferred distributions and premiums
on redemption of preferred shares in accordance with GAAP. The
equity positions of various individuals and entities that
contributed their properties to the Operating Partnership in
exchange for OP Units are collectively referred to as the
"Noncontrolling Interests – Operating Partnership". Subject to
certain restrictions, the Noncontrolling Interests – Operating
Partnership may exchange their OP Units for Common Shares on a
one-for-one basis.
The following table presents reconciliations of EPS to FFO per
share and Normalized FFO per share for Consolidated Statements of
Funds From Operations and Normalized Funds From Operations.
Actual June
Actual June
Actual
Actual
YTD 2020
YTD 2019
Q2 2020
Q2 2019
Per Share
Per Share
Per Share
Per Share
EPS – Diluted
$
1.53
$
1.11
$
0.70
$
0.83
Depreciation expense
1.07
1.04
0.53
0.51
Net (gain) loss on sales
(0.88
)
(0.54
)
(0.37
)
(0.54
)
Impairment – operating assets
—
—
—
—
FFO per share – Diluted
1.72
1.61
0.86
0.80
Impairment – non-operating assets
—
—
—
—
Write-off of pursuit costs
0.01
0.01
—
0.01
Debt extinguishment and preferred
share
redemption (gains) losses
—
0.04
—
0.04
Non-operating asset (gains) losses
—
—
—
—
Other miscellaneous items
(0.01
)
0.01
—
0.01
Normalized FFO per share – Diluted
$
1.72
$
1.67
$
0.86
$
0.86
Lease-Up NOI – Represents NOI for development properties:
(i) in various stages of lease-up; and (ii) where lease-up has been
completed but the properties were not stabilized (defined as having
achieved 90% occupancy for three consecutive months) for all of the
current and comparable periods presented.
Net Operating Income (“NOI”) – NOI is the Company’s
primary financial measure for evaluating each of its apartment
properties. NOI is defined as rental income less direct property
operating expenses (including real estate taxes and insurance). The
Company believes that NOI is helpful to investors as a supplemental
measure of its operating performance because it is a direct measure
of the actual operating results of the Company's apartment
properties. NOI does not include an allocation of property
management expenses either in the current or comparable periods.
Rental income for all leases and operating expense for ground
leases (for both same store and non-same store properties) are
reflected on a straight-line basis in accordance with GAAP for the
current and comparable periods.
The following tables present reconciliations of operating income
per the consolidated statements of operations to NOI, along with
rental income, operating expenses and NOI per the consolidated
statements of operations allocated between same store and non-same
store/other results (see Same Store Results):
Six Months Ended June
30,
Quarter Ended June 30,
2020
2019
2020
2019
Operating income
$
778,974
$
578,894
$
356,889
$
369,117
Adjustments:
Property management
51,317
50,765
23,608
24,369
General and administrative
26,353
29,710
11,835
14,329
Depreciation
418,398
404,723
205,976
200,508
Net (gain) loss on sales of real
estate
properties
(352,243
)
(138,835
)
(144,266
)
(138,856
)
Total NOI
$
922,799
$
925,257
$
454,042
$
469,467
Rental income:
Same store
$
1,260,825
$
1,258,261
$
623,275
$
637,915
Non-same store/other
75,012
73,415
30,257
31,459
Total rental income
1,335,837
1,331,676
653,532
669,374
Operating expenses:
Same store
386,742
382,188
190,021
190,277
Non-same store/other
26,296
24,231
9,469
9,630
Total operating expenses
413,038
406,419
199,490
199,907
NOI:
Same store
874,083
876,073
433,254
447,638
Non-same store/other
48,716
49,184
20,788
21,829
Total NOI
$
922,799
$
925,257
$
454,042
$
469,467
New Lease Change – The change in rent for a lease with a
new or transferring resident compared to the rent for the prior
lease of the identical apartment unit, regardless of lease term and
without concessions or discounts being applied.
Non-Residential – Consists of revenues and expenses from
retail and public parking garage operations.
Non-Same Store Properties – For annual comparisons,
primarily includes all properties acquired during 2019 and 2020,
plus any properties in lease-up and not stabilized as of January 1,
2019.
Physical Occupancy – The weighted average occupied
apartment units for the reporting period divided by the average of
total apartment units available for rent for the reporting
period.
Renewal Rate Achieved – The change in rent for a new
lease on an apartment unit where the lease has been renewed as
compared to the rent for the prior lease of the identical apartment
unit, regardless of lease term and without concessions or discounts
being applied.
Residential – Consists of multifamily apartment revenues
and expenses.
Same Store Operating
Expenses:
On-site Payroll – Includes payroll and
related expenses for on-site personnel including property managers,
leasing consultants, and maintenance staff.
Other On-site Operating Expenses –
Includes ground lease costs and administrative costs such as office
supplies, telephone and data charges and association and business
licensing fees.
Repairs and Maintenance – Includes
general maintenance costs, apartment unit turnover costs including
interior painting, routine landscaping, security, exterminating,
fire protection, snow removal, elevator, roof and parking lot
repairs and other miscellaneous building repair and maintenance
costs.
Utilities – Represents gross expenses
prior to any recoveries under the Resident Utility Billing System
(“RUBS”). Recoveries are reflected in rental income.
Same Store Properties – For annual comparisons, primarily
includes all properties acquired or completed that are stabilized
prior to January 1, 2019, less properties subsequently sold.
Properties are included in Same Store when they are stabilized for
all of the current and comparable periods presented.
% of Stabilized Budgeted NOI – Represents original
budgeted 2020 NOI for stabilized properties and projected annual
NOI at stabilization (defined as having achieved 90% occupancy for
three consecutive months) for properties that are in lease-up.
Total Budgeted Capital Cost – Estimated remaining cost
for projects under development and/or developed plus all
capitalized costs incurred to date, including land acquisition
costs, construction costs, capitalized real estate taxes and
insurance, capitalized interest and loan fees, permits,
professional fees, allocated development overhead and other
regulatory fees, plus any estimates of costs remaining to be funded
for all projects, all in accordance with GAAP.
Total Market Capitalization – The aggregate of the market
value of the Company’s outstanding common shares, including
restricted shares, the market value of the Company’s operating
partnership units outstanding, including restricted units (based on
the market value of the Company’s common shares) and the
outstanding principal balance of debt. The Company believes this is
a useful measure of a real estate operating company’s long-term
liquidity and balance sheet strength, because it shows an
approximate relationship between a company’s total debt and the
current total market value of its assets based on the current price
at which the Company’s common shares trade. However, because this
measure of leverage changes with fluctuations in the Company’s
share price, which occur regularly, this measure may change even
when the Company’s earnings, interest and debt levels remain
stable.
Traffic – Consists of an expression of interest in an
apartment by completing an in-person tour, self-guided tour or
virtual tour that may result in an application to lease.
Transaction Accretion (Dilution) – Represents the spread
between the Acquisition Cap Rate and the Disposition Yield.
Turnover – Total Residential move-outs (including
inter-property and intra-property transfers) divided by total
Residential apartment units.
Unencumbered NOI % – Represents NOI generated by
consolidated real estate assets unencumbered by outstanding secured
debt as a percentage of total NOI generated by all of the Company's
consolidated real estate assets.
Unlevered Internal Rate of Return (“IRR”) – The Unlevered
IRR on sold properties is the compound annual rate of return
calculated by the Company based on the timing and amount of: (i)
the gross purchase price of the property plus any direct
acquisition costs incurred by the Company; (ii) total revenues
earned during the Company’s ownership period; (iii) total direct
property operating expenses (including real estate taxes and
insurance) incurred during the Company’s ownership period; (iv)
capital expenditures incurred during the Company’s ownership
period; and (v) the gross sales price of the property net of
selling costs.
The calculation of the Unlevered IRR does not include an
adjustment for the Company’s property management expense, general
and administrative expense or interest expense (including loan
assumption costs and other loan-related costs). Therefore, the
Unlevered IRR is not a substitute for net income as a measure of
our performance. Management believes that the Unlevered IRR
achieved during the period a property is owned by the Company is
useful because it is one indication of the gross value created by
the Company’s acquisition, development, renovation, management and
ultimate sale of a property, before the impact of Company overhead.
The Unlevered IRR achieved on the properties as cited in this
release should not be viewed as an indication of the gross value
created with respect to other properties owned by the Company, and
the Company does not represent that it will achieve similar
Unlevered IRRs upon the disposition of other properties. The
weighted average Unlevered IRR for sold properties is weighted
based on all cash flows over the investment period for each
respective property, including net sales proceeds.
Weighted Average Coupons – Contractual interest rate for
each debt instrument weighted by principal balances as of June 30,
2020. In case of debt for which fair value hedges are in place, the
rate payable under the corresponding derivatives is used in lieu of
the contractual interest rate.
Weighted Average Rates – Interest expense for each debt
instrument for the six months ended June 30, 2020 weighted by its
average principal balance for the same period. Interest expense
includes amortization of premiums, discounts and other
comprehensive income on debt and related derivative instruments. In
case of debt for which derivatives are in place, the income or
expense recognized under the corresponding derivatives is included
in the total interest expense for the period.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200728005984/en/
Marty McKenna (312) 928-1901
Equity Residential (NYSE:EQR)
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